Definition
An overpayment occurs when a client pays more than the amount due on an invoice, for example by paying twice, paying the wrong invoice, or rounding up. The extra amount becomes a credit balance on the client's account that the business can refund or apply to a future invoice with the client's agreement.
Also called: Customer overpayment, Credit balance
Overpayment in practice
Do not quietly keep an overpayment. Record it as a credit on the client's account, tell the client, and either refund it or apply it to their next invoice. Leaving unexplained credits on the books makes reconciliation and statements confusing.
Frequently Asked Questions
Should I refund an overpayment or keep it as credit?
Ask the client. Regular clients often prefer to apply the credit to the next invoice. One-off clients usually expect a refund. Document whichever you agree.
How do I refund an overpayment?
Send the refund using the same method the client paid with where possible, and record it against the credit balance so the client account returns to zero. Keep a note or credit note showing the original payment, the amount refunded, and the date.
Related terms
- Refund A refund is money a business returns to a customer for a payment already made, in full or in part, because goods were returned, a service was cancelled, the customer was overcharged, or as a goodwill gesture.
- Credit note A credit note is a document a seller issues to reduce or cancel the amount owed on a previously issued invoice.
- Amount paid Amount paid is the sum of payments already received against an invoice, shown on the invoice or statement so the client can see how the balance due was calculated.
- Statement of account A statement of account is a summary document that lists all invoices, payments, and credits between a seller and one client over a period, ending with the current balance owed.
- Reconciliation Reconciliation is the process of matching payments received in your bank account to the invoices they settle, and confirming that your invoicing records agree with your bank records.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.